10.15 Real estate countermeasure ballooning, residential office buildings emerge as new alternative

10.changes in the real estate market since the 15 measures

10.two months after the implementation of the 15 real estate measures, we are seeing interesting developments in the housing market in Seoul and the Seoul metropolitan area. this is because liquid funds are moving to other outlets due to the simultaneous application of stringent regulations such as strengthening the obligation to live in an apartment, reducing the mortgage loan-to-value ratio, and expanding the land transaction license area.

the so-called "balloon effect" is being seen in many places, with demand shifting to non-apartment products such as villas and office buildings, and interest in unregulated areas with relatively weak regulations.

a surge in villa transactions in Gangnam

10.15 The real estate bubble effect is most evident in the villa market in Gangnam-gu and Songpa-gu. expectations of overhaul projects such as Moa Town and urban mixed-use development projects have led to a significant increase in villa transactions.

according to data released by the Ministry of Land, Infrastructure, and Transport, 355 villa transactions were recorded in Samjeon-dong, Songpa-gu, up 229 percent from 155 transactions last year. Seokchon-dong also recorded 284 transactions, up 22.4 percent year-on-year, and Yeoksam-dong, Gangnam-gu, rose 71.8 percent from 103 to 177 transactions.

these villas are not subject to land transaction licenses and residency requirements, which may have attracted investors' attention.

why large office buildings are gaining traction as apartment alternatives

after villas, the next area of change is the large office tower market, which has seen a spate of record-breaking transactions, especially in prime locations such as Gangnam-gu and Mokdong, Yangcheon-gu.

a dedicated 187-square-meter space at Tower Palace 3rd in Dogok-dong, Gangnam-gu, set a new record price of KRW 5.45 billion in November, up from KRW 4.2 billion for the same space last year, an increase of more than KRW 1.2 billion in a year. A dedicated 137-square-meter space at Hyundai Hyperion in Mokdong, Yangcheon-gu, also set a new record price of KRW 2.97 billion in October, up from KRW 2.5 billion in the first half of the year.

the sales price index for large office buildings with more than 85 square meters dedicated to office use stood at 0.44 percent in October, while KB Real Estate's monthly statistics show that large office building sales prices have been on the rise for 13 consecutive months.

office buildings are not classified as housing, which allows them to avoid lending restrictions. while the LTV for apartments is 40 percent, the LTV for office buildings remains at 70 percent, allowing for gap investments. they're also excluded from the housing count, which is an advantage for qualifying.

advantages and investment appeal of residential office buildings

there's a reason why residential office buildings have become a favorite product of the regulatory backlash. this is because they are most similar to apartments in terms of housing type, so they can meet actual demand, and as the phenomenon of renting accelerates, investment returns are also expected.

recently, office buildings have adopted the three- and four-bay designs that are commonly found in apartments, separating bedrooms and living rooms, and offering specialized floor plans such as terraces and attics. security, community facilities, and parking are also available to provide residents with satisfaction comparable to that of apartments.

According to KB Real Estate, from January to October of this year, Seoul's monthly apartment price index rose 7.15 percent, the highest in 10 years since the statistics began in 2016. this means that office buildings, which are the mainstay of the rental market, are playing an important role and growing the pie.

the unregulated area balloon effect and demand movement

the situation in unregulated areas varies from region to region. according to the Korea Real Estate Agency, apartment sales price growth in the Seoul metropolitan area was 0.10 percent in the fourth week of November, down from 0.13 percent in the previous week. hwaseong City, where the Dongtan New City is located, saw the overheating trend subside, with the increase shrinking from 0.36 percent to 0.26 percent.

guri, on the other hand, saw an increase from 0.24 percent to 0.31 percent, while Suwon Gwonseon-gu and Anyang Manan-gu also continued their upward trend. While the balloon effect in the form of overheating was widespread in the past, it has been limited to a few areas recently, indicating that buyers are moving cautiously.

what you need to know when investing in office buildings

10.15 Real estate countermeasures While the balloon effect has put the office market in the spotlight, not all office buildings are the answer: they have a higher investment demand relative to actual demand than apartments, making them more sensitive to external variables such as changes in interest rates. there is also extreme polarization of returns based on location.

real estate experts advise that there is a risk of delays in refurbishment projects and that demand for office buildings varies widely depending on the specific area or complex, so buying on a whim can be costly. you need to make sure you're in a safe place for the medium to long term before making a move.

it's important to remember that only large office buildings with key locations, such as education, work, and transportation, are valuable alternatives to apartments.

frequently asked questions

Q1. What is the 10.15 real estate bubble effect?

A1. The balloon effect is a phenomenon whereby demand shifts to non-apartment products, such as unregulated villas and office buildings, or to unregulated areas, as a result of the stricter regulations imposed on apartments by the 10.15 measures.

Q2. Why are office buildings gaining attention as an alternative to apartments?

A2. Officetel is not classified as a house, so it has advantages such as 70 percent LTV, exemption from the residency requirement, and gap investment. they are also excluded from the housing count, making it easier to qualify for subsidized housing.

Q3. What should I be aware of when investing in residential office buildings?

A3. Yields are highly polarized by location and sensitive to interest rate changes. be sure to check basic conditions such as transportation, school districts, and accessibility to business districts, and invest from a mid- to long-term perspective.

Q4. How has the transaction volume of office buildings changed since the October 15 measures?

A4. From January to October this year, there were 10,770 office tower transactions in Seoul, up 17 percent year-on-year. In October, transaction volume increased by about 2.5 times since the measures were announced.

conclusion

10.15 Residential office buildings are rapidly emerging as an alternative to apartments due to the real estate measures' balloon effect. however, it should be approached with caution by carefully considering location and product quality.

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